In the last year, we have had more and more current CalPERS employees us about disturbing issues they see on a day-to-day basis, including what they describe as widespread cronyism and featherbedding. While many of these reports are troubling, we have held off on posting on them due to not (yet) obtaining sufficient levels of verification.

However, these sources have regularly volunteered dim views of CEO Marcie Frost. For instance, one called Marcie “exceptionally incompetent”. These assessments by CalPERS employees strike at the heart of the defense made by some board members and Frost’s external allies, that Frost is supposedly doing a fine job.

It is not difficult to identify examples of Frost’s deficient leadership in her less than two year tenure as CEO. Consistent with the rising level of employees leaking to us, fiascoes also appear to be far more frequent than under her predecessor, Anne Stausboll.

We’ll start with how despite having worked as the head of Human Resources at Washington’s Department of Retirement Services, Frost has presided over a series of HR debacles. That suggests she either wasn’t much of an HR manager or forgot most of what she learned.

Next week, we’ll turn to IT and other operational issues, which were supposed strong areas for Frost, as a former IT manager, a self-proclaimed expert in lean management techniques, and the head of the processing side of Washington’s state pension system.

One incident, that of the alleged theft, alteration, and illegal dissemination of an employee’s personnel records, is so significant and also raises troubling issues, such as Matt Jacobs instructing the Information Technology department not to report the crime (hacking) as required, that we will discuss that matter in a stand-alone post.

Charles Asubonten Hiring, Defense, and Dismissal

Frost’s effort to hire a new Chief Financial Officer was a multi-chapter debacle. The giant fund burned the first candidate Frost chose while using the services of search firm Heidrick & Struggles. Board member Richard Gillihan had not only accepted the offer but CalPERS had announced he was joining, only to have to go into a week later.

Before CalPERS announced Gillihan’s appointment, former board member JJ Jelincic pointed out that Gillihan had what is called a “1090 problem.” California Government Code Section 1090 . Gillihan had been involved in the wage-setting for the CFO position, which meant in taking the job, he would have benefitted from his previous action.

Even though CEO Marcie Frost and General Counsel Matt Jacobs initially waved off Jelincic’s warning, other lawyers confirmed his concerns, leading to further investigation of the issue. Gillihan decided he did not want the legal exposure and withdrew his acceptance.

This is worse than it looks. Gillihan had told CalHR of his intention to leave and had to grovel to be reinstated. Although Gillihan almost certainly could have landed another senior government job or lobbyist post, he was at real risk of suffering a period of unemployment thanks to Frost’s and Jacobs’ cavalier attitude.

But the most stunning part is what happened next. Frost put her ego ahead of what was best for CalPERS.

It should have been obvious that having a perjurer1 in a senior role should be unacceptable from a risk management and behavioral vantage, and that understanding which if any of our charges were accurate should be her top priority.

But rather than decline to respond to press inquiries and launch an investigation of Asubonten, Frost took the selfish, reckless and amateurish step of trying to brazen the scandal out. She joined Asubonten, implicitly putting her name on everything he said, on a call with Pulitzer Prize winning reporter Mike Hiltzik of the Los Angeles Times. That did not go well.

Hiltzik’s article forced CalPERS into a retreat, with the pension system finally investigating Asubonten and dismissing him shortly thereafter.

Before we go onto the other incidents, it is key to understand that this fiasco alone raises major doubts about Frost’s sense of priorities and her competence as a manager. She was apparently so loath to admit error and so deeply invested in Asubonten as a hire that she doubled down and did more damage to herself and CalPERS in the process. But even more serious is that if a reporter of Hiltzik’s stature had not taken interest in this story, CalPERS would have kept on a documented liar and perjurer in an executive position that, among other things, handled banking relations.

This Thursday, November 3, the California State Personnel Board is set to approve changes to the job description of CalPERS’ Chief Actuary that are depicted as minor but are anything but. We get to the CalPERS job description shortly, but :

An actuary is a business professional who analyzes the financial consequences of risk. Actuaries use mathematics, statistics, and financial theory to study uncertain future events, especially those of concern to insurance and pension programs.

The proposed changes both amount to a violation of the California Constitution by attempting to end the required role of the board in policy-making, and separately so far reducing the minimum qualifications for the job that they will be lower than that for the most junior actuaries now employed at CalPERS. Needless to say, that makes a mockery of the claim that CalPERS needs to dumb down the job description so severely to fill the post. CalPERS could promote someone from inside by relaxing the requirements less or not at all.

One has to assume that the motivation for allowing a person who would be deemed to be grossly unqualified under current rules to be hired in the Chief Actuary is that the new CEO, Marcie Frost, has someone specific she’d like to bring in. The fact that Frost herself does not have a college degree and certainly does not have the mathematical chops to evaluate an actuary’s professional competence certainly looks like she is giving personal loyalty far too much weight in a role where analytical rigor and professionalism are of paramount importance.

We had a great deal more to say about the matter in that post and encouraged readers to journalists who might take up the story.

Real Desrochers , has yet to be replaced. Informed sources tell us that the members of the private equity department are demoralized.

Private equity, as CalPERS Chief Investment Officer Ted Eliopoulos has said with great regularity, is extremely important to CalPERS, since the giant fund believes that private equity is the only investment strategy that can be expected to exceed CalPERS’ return target.2 It is currently 8% of CalPERS’ asset allocation and represents more than half of total investment fees and costs, as well as the majority of total portfolio risk. It is too significant to go unmanaged for almost a year and a half….and yet that is precisely what has been going on, with no change on the horizon.

Culture of Cronyism

In our companion post today, we discuss how something is clearly very wrong in CalPERS’ audit department and why that matters. One of the complaints is that clearly undeserving candidates have been promoted. That is consistent with the reports we have received from current employees about widespread cronyism. Each paragraph is from a different individual, and each works in a different area of CalPERS:

The most senior people inside CalPERS are deathly afraid of outsiders. A bunch of CalPERS MDs are Sacramento local yokels and are concerned about the “cultural misfit” of bringing in talented outsiders who would have the power to disrupt their fiefdoms and shine light on the internal graft. The organization is run like a poorly operated militia – everyone takes their marching orders from the next guy up the chain without ever questioning those orders for fear of rocking the boat. Loyalty is rewarded with promotions and special raises – independent thought and hard work are not. There are employees who literally do nothing all day, collect a paycheck and one day a pension, and are stealing from the state of California taxpayer. The organization is so full of blight you would need external consultants to come in and have everyone interview for their jobs and prove they are actually working and possess some degree of competence….The organization is in dire need of strong independent external voices to fill these positions….especially the CIO. Ted and his predecessor Joe Dear (may he RIP) were grossly unqualified, embarassingly so.

No other organization has done so little with so much, and it’s the grinding, illogical, short-sighted bureaucracy that is to blame.

The atmosphere inside the PERS Office of Audit Services is absolutely horrendous with mismanagement. Many of us have gone to the union for help, and some are pushing for a group grievance on behalf of all of us against all managers. Besides having lost nearly a quarter of the staff on our public agency audit side, the nepotism and favoritism given to people who are not deserving or qualified makes it tough to deal with.

We’ll continue with Marcie Frost’s rap sheet in our post on the red flag of the problems in the Audit Services teams.

____

1 Asubonten provided false information on two forms signed under penalty of perjury: an employment application and a Form 700, a required disclosure of financial conflicts of interest.

2 We’ve written at considerable length why this claim needs to be taken with a fistful of salt. A few of many reasons:

Private equity funds have not earned enough to justify their higher risks for the last decade

Private equity general partners have warned that private equity returns will be lower in the future

Man, I hate to betray my somewhat stereotypical ‘Old School System Administrators Attitude’, but that quote above tells me everything I need to know about what any upcoming CalPERS IT article is going to be like.

This insider cronyism in hiring and promoting (even of incompetents) is the reason civil service and merit (experience, education, proven ability) hiring laws were passed in cities and states beginning around 100 years ago. This has to be demoralizing for the CalPERS employees who still believe public service jobs are about Public Service, and not about self-enrichment or doing favors for the “right people”. CalPERS has gone back to the bad old days, pre-1910. While the one-party Cali government looks the other way.

Now that it’s clear many employees are talking to NC I expect there will be even worse draconian measures implemented within CalPERS to block information sharing within and between departments.

The pension is in lieu of competitive market rates of pay, a deferred compensation that the employee’s pay is charged for per month or semi-monthly paycheck. It’s not a gratis add-on, at least not for most govt pension enrolled employees. When IT salaries were going into the stratosphere for the private employers 15 years ago, the equally and sometimes more qualified IT pros in govt service were getting paid much less up front, and continued to be paid less up front. The pension contracts, the deferred compensation, was supposed to make up the difference, over the long term. adding: there’s nothing wrong with a steady paycheck and a pension. If it weren’t for the benefits offered, most govt agencies couldn’t afford to hire qualified people.

What’s happened in the last 15 years is that so many private companies have been PE’ed into oblivion, and along with them the pensions many offered, that now pensions themselves are seen as some sort of luxury to be jealous of, instead of asking why the H*** so many private pensions have been destroyed. my 2¢.

When that happens, (and it has happened thanks to ‘cut taxes and starve the govt’ approaches), when that happens salaries aren’t raised but instead the work is outsource to non-govt contractors. Such a great way to do even more favors for one’s cronies and crappify govt services even more than starving said agencies for resources accomplishes . It’s step 2 in a kind of siege warfare against the public. (aka ‘neoliberalism’.)

adding (and sorry to go on) : shortly after the dot com bubble, when private employer salaries for IT pros were going through the roof and lots of my state’s govt IT people were leaving for greener pastures in up front pay, my state sent out a very long and detailed questionnaire to all IT employees in all levels of service. Questionnaire was to determine the work being done, the education and skill required, and compare salaries with those doing similar work in the private sector. The reason for the questionnaire was to determine how much the state would have to raise pay rates, or how far behind the private sector the public sectors’ pay rates were – even with benefits added in.
Questionnaire answers had to be vetted and approved by both managers and HR so that no one could just make stuff up.
After questionnaires were returned to the state agency doing the salary study, they were never heard from again. It was clear the state simply could not afford to match or come close to matching the private sector salaries. They did create some new job classifications people could apply for that had better pay rates, but no wholesales improvements.

The most senior people inside CalPERS are deathly afraid of outsiders. A bunch of CalPERS MDs are Sacramento local yokels and are concerned about the “cultural misfit” of bringing in talented outsiders who would have the power to disrupt their fiefdoms and shine light on the internal graft.

Yeah, thought so. Color me unsurprised. These worthless, gutless, cheating, lying, grifters at the top of CalPers have set up a cozy nest for themselves, and they’re gonna fight, kicking & screaming, to keep it that way.

That’s, in part, why incompetent, clearly unqualified Frost was hired and remains as a totally worthless CEO. She permits this culture of incompetence and graft, and no doubt, she, herself, benefits mightily from it.

I worked in a much much smaller organization that had a clearly incompetent and unqualified top dog in place. This person’s “management” style was Ye Olde pit everyone against everyone else in order to keep the spotlight off of him. It worked for a while. Some said he was embezzling money, which, in that organization, was entirely possible.

It took a huge effort to oust that creep bc the supervisory Board really just wanted to turn their heads and look the other way and not have to DEAL with it. THIS is likely what’s happening with CalPers. The Rot and Corruption is so deeply ingrained that it’s going to take some effort to clean the Augean stables. No one ever wants to step up and do that.

As a CA taxpayer, I demand that Frost be fired immediately and an outside audit take place. Won’t hold my breath, however.

Localism is not peculiar to Sacramento. Seattle is blithely full of it. Other areas, too. But the description of both incompetence and active mismanagement at CalPERS under Frost and her board chair is striking. Even if it were common, being CalPERS, it requires special attention – and a fix.

I was just thinking that wouldn’t it be funny if someone got Trump to send out a few tweets about CalPERS. He could be told that it was an easy way to hit the democratic establishment in California on the eve of the mid-terms. I can see it now –

“Crooked CalPERS! Stealing pensioners hard-earned money while the Californian democrats look on and do nothing. Very bad! Something must be done!”

Can you imagine the democrats trying to defend CalPERS while the national spotlight was on them and their activities? I doubt that any publicity would be good for CalPERS as they have far too much to hide. It would be delicious. Any White House staffers reading this that could send him a tweet?

The prosecution and incarceration of the ex-CEO of CalPERS has clearly had no effect on the culture in the little back-water town of Sacramento. While some people simply wake-up every day with a guilty conscience, folks generally don’t engage in this extensive a cover-up unless there is some pretty bad behavior going on behind the curtain.

I am a CalPERS retiree. In addition to the numerous complaints I have filed with various public authorities on the Frost matter, I just filed a complaint with the California State Personnel Board Compliance Review Unit which must accept complaints from all members of the general public. While SPB cannot terminate a state employee, every 3 years it conducts periodic checks of an appointing authority’s personnel practices to ensure compliance with state civil service laws, regulations, and policies which include merit based principles in hiring practices. If the circumstances merit, SPB is empowered to conduct special investigations. My complaint expressed grave concerns about corruption in CalPERS hiring practices as evidenced by their former CFO Charles Asubonten who was fired for lying on his resume and their current CEO Marcie Frost who is credibly accused of it.

If you wish to file a complaint, go to , click on For Individuals on the right side of the page, click on How to Contact Compliance Review, click on Compliance Review Unit E-Mail Address, and compose and send your email complaint. There’s also a space for ccs. I cc’d Board President Priya Mathur at [email protected] to let her know that any sustained effort to contain the brewing Frost scandal by keeping it in-house will most likely prove to be a failing strategy.

I appreciate your willingness to write, but your efforts are misdirected and you are encouraging other readers to waste their time.

Forst is not a civil service employee. She is an at will employee of the board. The SPB has nada to do with her.

As I have repeatedly said, the people to write are:

1. Governor, Jerry Brown, who has appointees on the board (e-mail form ; fax 916-558-3160)

2. The two chairs of the pension committees, since CalPERS is afraid of the legislature, Dr Richard Pan ([email protected]; fax 916- 651-4906 or 916-14-2179 ) and in the Assembly ([email protected]; fax 909-902-9761).

I’ve made this reply to another post, but I’m going to repeat it here because it appears especially apt given that this post is all about cronyism and lousy management at CalPERS and loyalty based promotions at the rank and file level.

I am a CalPERS retiree. In addition to the numerous complaints I have filed with various public authorities on the Frost matter, I just filed a complaint with the California State Personnel Board Compliance Review Unit which must accept complaints from all members of the general public. While SPB cannot terminate a state employee, every 3 years it conducts periodic checks of an appointing authority’s personnel practices to ensure compliance with state civil service laws, regulations, and policies which include merit based principles in hiring practices. If the circumstances merit, SPB is empowered to conduct special investigations. My complaint expressed grave concerns about corruption in CalPERS hiring practices as evidenced by their former CFO Charles Asubonten who was fired for lying on his resume and their current CEO Marcie Frost who is credibly accused of it.

If you wish to file a complaint, go to , click on For Individuals on the right side of the page, click on How to Contact Compliance Review, click on Compliance Review Unit E-Mail Address, and compose and send your email complaint. There’s also a space for ccs. I cc’d Board President Priya Mathur at [email protected] to let her know that any sustained effort to contain the brewing Frost scandal by keeping it in-house will most likely prove to be a failed strategy.

Managing Investment Director of Private Equity, job is vacant, replacement not named, and leadership is missing in action. Does that leave it to outside vendors to “temporarily” fill the gap?

More generally, your series deals with questions important to millions of people in California, to the state budget and its future, and to every state pension fund in general.

Mismanagement by incompetents costs billions. When it’s at the top, its costs are hidden for a long time or permanently. Like pollution, others pay the price. Transparency and accountability have never been more necessary. Thank you.